Apportionment of the primary residence exclusion for CGT purposes

Q: Whether an individual will be able to claim a capital loss in terms of the selling of his primary residence, if he only physically resided in this property for 2 of the 4 years the property was held.

Our client is planning to sell his primary residence and a capital loss will be realised. However he only stayed in the property for 2 of the 4 years the property was held. We would like to know whether our client will be entitled to claim the capital loss and how the calculation / apportionment will work in this case. Also, if you can just confirm that attorney fees and transfer costs are not a deductible cost for capital gains tax purposes.

I am of the opinion that there could be an apportionment allowable, but I am uncertain as to the exact calculation thereof. I am also of the opinion that attorney fees and transfer costs are not deductible for capital gains tax purposes.

A: The matter that you require guidance on is covered in Part VII: Primary residence exclusion (paragraphs 44 – 50). The SARS CGT guide covers it chapter 11.

To provide the guidance required we need to know what the residence was used for in the period that he didn’t reside in it (was not ordinarily resident in that residence). The capital loss determined in respect of the disposal of the primary residence of that person will then only be available for set-off to the extent that it exceeds R2 million.

We assume the attorney fees and transfer costs relate to the acquisition of the property. These costs will qualify as base cost – see paragraph 20(1)(c)(i) and (iii) of the Eighth Schedule – if they were actually incurred as expenditure directly related to the acquisition or disposal of that asset.

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